The Canadian Federation of Independent Business (CFIB) has raised concerns over the federal government’s proposed tax changes, announced by Finance Minister Bill Morneau on July 18.

Although the government’s intent is to close tax loopholes, the CFIB is concerned that it may keep small business owners from legitimately sharing income with family members. Seventy per cent of CFIB’s 109,000 members employ family in their businesses.

Business tax planning

"These proposed changes may create uncertainty at a time when small businesses need reassurances from their governments," said Corinne Pohlmann, CFIB's Senior VP of National Affairs. "With fresh US demands for NAFTA changes, and several years of payroll taxes increases looming, the last thing small business owners need is uncertainty when they are doing their business tax planning. Owners of small firms were already disappointed when the small business tax rate was not lowered to 9 per cent as promised, limiting their ability to reinvest tax savings into the business.”

Business transfers

The CFIB adds that it is pleased that the government has expressed openness to facilitating transfers of business between family members from one generation to the next. “Currently, tax rules make it less expensive to sell your business to a stranger than to a daughter or son, and this just shouldn't be the case," Pohlmann said. "It is good news that the government is looking at potentially changing this."

Private corporations

Finance Minister Morneau announced the launch of consultations on tax planning using private corporations and released a consultation paper. The government’s concerns include income sprinkling among family members; retaining passive investments in a corporation and converting a private corporation's regular income into capital gains.

"When you have an economy that works for the middle class, you have a country that works for everyone. That's the spirit in which we are asking Canadians for input into how to close loopholes and address tax planning strategies that give unfair tax advantages,” says Morneau. “Many of the richest Canadians are unfairly exploiting the tax rules designed to help businesses thrive. We know that businesses, including small businesses, help grow the Canadian economy. These tax advantages are in place to help these businesses reinvest and grow, find new customers, buy new equipment and hire more people. We want to make sure those rules are used to do just that, and not to give unfair tax advantages to certain – often high-income – individuals."